Question

Giorgio Italian Market bought $7,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $7,000. Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)

Answer 1

Answer:

Food Suppliers journal entry to record the collection on the maturity date is,

Debit Cash $7,105;

Credit Interest Revenue $105; Credit Notes Receivable $7,000

Explanation:

The journal entry to record the collection at the maturity date would be,

Account Title                           Debit                Credit

Cash                                        $7,105

Interest Revenue                                                $105

Notes Receivable                                             $7,000

Interest revenue would be calculated as,

7000 * 6% = $420 would be the interest in one year on the note. Since it is a 90-day note,

420 / 4 = $105

On the maturity date, Food supplier will record the collection of cash which is the amount of interest + the worth of merchandise bought. (105+7000) = $7105